Netflix,

Inc. (NasdaqGS: NFLX)

Last Price: $244.96 VIEW: NEUTRAL

7/29/2013

Netflix, Inc. provides Internet television network service that enables subscribers to stream TV shows and movies directly on TVs, computers, and mobile devices in the United States and internationally. The company operates in three segments: Domestic Streaming, International Streaming, and Domestic DVD. Netflix delivers digital content to PCs, Internet- connected TVs, and consumer electronic devices including but not limited to the Xbox 360, Playstation, and Wii.

Sector: Services Industry: Music and Video Stores

Highlights: Netflix is the world's largest video and television episode rental subscription service, having pioneered the model and charging customers a flat monthly fee for unlimited rentals without due dates, late fees, shipping fees or pay-per-view fees. The stock closed yesterdays trading session at $244.96. In the past year, the stock has hit a 52-week low of $52.81 and 52-week high of $270.31. Technical indicators for the stock are bullish for the short term but the companys fundamental ratios are not promising. GROWTH AND BALANCE SHEET Netflix earned $29.5 million, or 49 cents per share, in the quarter, up from $6.2 million, or 11 cents per share, a year earlier, revenue climbed 20 percent from last year to $1.07 billion Netflix picked up 630,000 U.S. subscribers during the three months ending in June. That performance was slightly above the mid-range target set by Netflix Inc.'s management in April. Netflix has added 2.7 million subscribers so far this year, up from 2.5 million at the

same time last year. The second-quarter gains leave Netflix with 29.8 million U.S. subscribers to an $8 monthly service that streams video to Internet-connected devices. Netflix also added 605,000 international subscribers in the second quarter to boost its total customers outside the U.S to 7.75 million. Netflix's DVD-by-mail rental service continued a gradual demise as more people embrace the convenience of Internet streaming instead of waiting for discs to be delivered. Netflix lost another 475,000 DVD subscribers in the second quarter, leaving the company with 7.5 million on that side of its service. VALUATION The company increasingly is relying on programming produced especially for its service to retain current subscribers and lure new customers. Since the beginning of the year, Netflix has released four original series, including the debut of "Orange Is The New Black" earlier this month. NFLX PE stands at 305.28 below the industry average of 308.66 and well above the S&P 500 average of 16.70. The stock is currently trading at its intrinsic value of $244.23 this suggests that the stock is fairly valued at these levels. NFLX's current Price/Sales of 3.66 is above the average of its industry, of 0.58. The beta of 1.5 implies higher volatility of the stock with respect to the S&P 500. NFLX pays no dividend. Netflix is also looking to create its own content such as TV shows and movies in order to attract more members. RECOMMENDATION for next 6 months: We give a NEUTRAL recommendation high risk for NFLX. The company has demonstrated bullish technical signs but it is trading for a very high valuation. NFLX stock is 164.00% higher year to date. Our overall score for NFLX is 5.82. For options trading, we suggest: Netflix, Inc. VALUATION 14,39B Market Cap: Enterprise Value 13,93B P/E forward 306,32 PEG Ratio 7,88 Price/Sales 3,66 Price/Book 13,05 Enterprise Value/Revenue 3,53 Enterprise Value/EBITDA 81,06 Dividend Yield N/A STOCK Beta 1 Month Stock Returns Year to Date Stock Returns 1 Year Stock Returns 3 Year Stock Returns 52-Week Change S&P500 52-Week Change 52-Week High 52-Week Low 1,5 15,78% 164,00% 314,80% 149,30% 330,89% 22,19% 270,31 52,81 Sell the August 2013 call with a strike of 270 priced at $5.61 per contract Net Credit to start: $5.61

 Held by insiders NEWS and CALENDAR

2,21%

50-Day Moving Average 200-Day Moving Average

234,18 198,48

Monday July 29, 2012 Arnett says the Bluth family may return to Netflix Sunday July 28, 2012 - Netflix Brings Amazon Web Services Closer Friday July 26, 2012 Netflix hopes to make a splash with 'Mako Mermaids' Wednesday July 24, 2012 - Netflix Continues To Divide Investors NFLX Strengths It has more than 33.3 million global subscribers for streaming alone Brand Value is now on the rise, after receiving very strong media attention from the launch of its House of Cards series. Proliferation of Netflix-ready devices adds value to Netflix's digital streaming service Size of subscriber base gives Netflix negotiating leverage for content wii movies Constant Innovative Culture Strong Expansion

NFLX Weakness Competitor Comparison NFLX Market Cap: 14.36B Employees: 2045 Qtrly Rev Growth 0.20 Revenue 3.94B Gross Margin 0.28 EBITDA 171.88M Operating Margin 0.03 Net Income 47.73M EPS 0.80 AMZN 139.16B 88400 0.22 66.85B 0.26 2.98B 0.01 -101M -0.23 Industry 168.62M 1.69K 0.00 456.14M 0.36 16.38M 0.02 N/A 0.80 Lost and defective dvd's costs Amazon breaking into movie rental First Release Time Delay Reliance on studio Agreements to secure content Strong competition

P/E PEG P/S

305.52 7.88 3.66

N/A 9.37 2.09

308.66 7.98 0.58

Stock valuation model

The model rates stocks from 1 to 10, with 10 being the best using a system of advanced mathematics to determine a stock's expected risk and return. I am using different fundamental and technical factors in order to rank a stock. Intrinsic value of the stock Investors should buy stocks selling at a discount to their intrinsic value, and then patiently wait for the fair value of their investments to be realized. In the valuation process, the intrinsic value of any investment equals the present value of the expected cash benefits. For common stock, this amounts to the cash dividends received each year plus the future sale price of the stock. NFLX Intrinsic Value EPS ttm EPS Growth (Assumption) PE DIVIDEND PAYOUT EXPECTED STOCK RETURN Forecasted Stock Price in 2022 Earnings Per Share after the 10th year TOTAL DIVIDENDS Forecasted Stock Price in 2022+DIVIDENDS Net Present Value 633,47 2,07 0,8 1,10 305,29 0% 1,10 0,00 633,47 244,23 Year 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 TOTAL EPS EPS 0,88 0,97 1,06 1,17 1,29 1,42 1,56 1,71 1,89 2,07 14,02

NFLX intrinsic value is $244.83 the current price is $244.96, the stock trades at its fair value. Financials The financial health of the company the higher the better, we evaluate all the financial ratios of the company.

Sentiment Investors sentiment for the stock Analyst ratings The model assigns a value according to analysts recommendation for the stock. Earnings Consistency We are searching for EPS numbers that are better than the previous year's. One dip is allowed, but the following year's earnings should be higher than the previous year. NFLX annual EPS for the last 5 years were 1.32, 1.98, 2.96, 4.16 and 0.30 this type of earnings action is favorable for our model. Total Debt/Equity The company must have a low Debt/Equity ratio, which indicates a strong balance sheet. The Debt/Equity ratio should not be greater than 20% or should be less than the average Debt/Equity for its industry NFLXs Total Debt/Equity is 45.20% and is not acceptable for our model. EPS This Quarter VS Same Quarter Last Year The EPS growth for this quarter relative to the same quarter a year earlier is above the minimum 15% that this model likes to see for a "good" growth company. Stocks with improving earnings each year deserve your extra attention. NFLXs, EPS growth for this quarter relative to the same quarter a year earlier is 345.40%, above our target. Annual Earnings Growth This stock valuation model looks for annual earnings growth above 10%, but prefers higher than 15%. NFLXs annual earnings growth rate over the last five years is -21.10% below our target growth rate. Current Price Level Investors should keep an eye open for stocks that are trading within 10% of their 52-week highs, as it is likely to continue in its upward trend. NFLXs, 52 week high is $270.31 current price is $244.96 is 9% below the 52 week high. P/E Ratio The Price/Earnings (P/E) ratio, based on the greater of the current PE or the PE using average earnings over the last 3 fiscal years, must be "moderate", which in this model states is not greater than 15. Stocks with moderate P/Es are more defensive by nature.

The company has a P/E ratio of 305.29, below the average industry P/E ratio of 308.66 and is above the S&P 500 P/E ratio of 16.70. Insider Ownership When there is strong insider ownership which we define as 8% or more, management is more likely to act in the best interest of the company, as their interests are right in line with that of the shareholders. Insiders own 2.21% of NFLX stock. Management's representation is not large enough. This does not satisfy our minimum requirement; companies that pass this test are more attractive to our valuation model. Technical Analysis The model is using several technical indicators (MACD, RSI, MFI, OBV, position Indicators) to forecast the trend of the stock for 6 and 12 months, and assign a value. NFLX is trading in the range of $207.56 - $270.31 in the last 30 days. The stock has been showing support around $232.00 and resistance in the $268.00 range. The stock is trading below the 50-Day Moving Average and above the 200-Day Moving Average. RSI(14): 45.56. Our indicators give a bullish view on NFLX. NFLX Scorecard COMPANY: Intrinsic value of the stock Financials Sentiment Analyst ratings Earnings Consistency Total Debt/Equity Quarterly EPS change Annual Earnings Growth Current Price Level Ratio P/E Insider Ownership

NFLX
5 4 5 5 8 4 9 3 8 5 4

 Technical Analysis SCORE RECOMMENDATION:

8 68

6,18 BUY